The upcoming lease accounting standard and its impacts on lessee's financial statements, and financial ratios "a practical simulation test".

Shahir El-Qawaqneh1, Nur Hidayah Binti Laili, Khairil F. Bin Khairi


A simulator is employed to explore the actual impacts of the upcoming lease accounting standard on thefinancial statements item, financial risk, and performance ratios, we apply its regulations to the Royal JordanianAirlines (RJ) financial statements. Capitalization of 30 real operation lease contracts commencing in (2002-2014) reveal with a magnitude change in assets, lease liabilities, and owners' equity. Since we use real RJ dataand depreciate the capitalized asset in a straight line method over lease term , Change in lease liabilities exceedschange on assets over time , thus resulted in a magnitude negative impact on owners' equity over 13 years.Results report a negative impact on four leverage ratios (TD/TA, TD/E, LTD/CE, IC) only NCA/ TA shows apositive change over time. We find aease material negative impact on two profitability ratios (NPM and ROE).EBIT margin and ROCE shows a positive change owing to the fact that we adjust the EBIT by the unrecordedlease interest and adjust the CE by the recorded short term operation lease liabilities, Capitalization shows anegative impact on ROA for the period 200-2007 and a positive impact for the period 2008-2014, since the ROAchange depend on the Adjusted EBIT and the Adjusted total asset, TA , also the Adj. EBIT show a magnitudepositive change over the period 2008-2014 resulting from the unrecorded liabilities interest , since the operationlease contracts number dramatically increased . Liquidity ratio (CR) current ratio shows a positive change, as nochange in current asset with a decrease in current liabilities adjusted by the recorded short term lease asset. Inview of the considerable increase in total assets Results reveal with a negative change in asset turn over AT. Thesignificant shift in key financial risk ratios, and the negative change in major financial performance ratiossuggest that interested parties "economic decisions" could be affected, therefore the upcoming lease accountingregulation could negatively affect the financial position of the airfreight firms that heavily depend on operationlease in aircraft acquirement.Keywords: simulation, capitalization, financial risk ratios, performance ratios, lease accounting standards

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